McDonald’s U.S. Sales Stabilize After Lockdown Caused Plunge

(Bloomberg) -- McDonald’s Corp.’s U.S. sales recovered much of their lost ground in May after a 19% slump in April, evidence that consumers tired of home cooking were eager to get back into the drive-thru lane.

The world’s biggest restaurant operator said that same-store sales -- a key gauge of success -- fell only 5.1% last month from a year earlier. The decline was deeper in international markets, but also showed improvement in May.

McDonald’s mid-quarter sales update underscores the importance during the Covid-19 pandemic of drive thrus, which are present at a majority of its U.S. locations. Delivery, which buoyed results at Papa John’s International Inc., is emerging as another important sales driver. Traditional dine-in restaurants are experiencing a much deeper hit.

The worldwide coronavirus crisis is still seen having a significant impact, with analysts forecasting McDonald’s revenue will fall 36% in the three months through June. The company appears to be weathering the storm better then most, however, and McDonald’s Chief Executive Officer Chris Kempczinski reiterated that he sees the chain emerging “in a position of competitive strength.”

Still, the company is looking to reduce its debt ratio to pre-Covid levels, and likely won’t buy back shares in the “near term,” Chief Financial Officer Kevin Ozan said during an investor call Tuesday. Top cash priorities for the fast-food company include business investment and dividends, he said.

McDonald’s shares rose as much as 2.1% to $193.50 on Tuesday. The stock fell 4.1% this year through Monday’s close, a little less than the decline of the S&P 500 Index over the same period.

Guest Visits

Guest visits, which have broadly declined in recent quarters, remained negative, especially during the early breakfast hours. With millions of office workers staying at home, morning commuter sales have taken a hit for restaurant operators, although Dunkin’ Brands Group Inc. has said greater lunchtime demand is helping to offset this trend.

Almost all of McDonald’s U.S. restaurants are now operational via drive thru and delivery, the company reported. More than 1,000 have reopened with seating limits, while about 100 remain closed due to being located in areas such as malls. McDonald’s has about 14,000 U.S. locations.

The company has seen bigger swings in other countries, with reopened locations lagging behind in nations including the U.K. and Russia. But hard-hit countries like Italy and Spain are now close to being fully operational, McDonald’s reported.

Kempczinski said during the investor call that the company will be slower to reopen restaurants in Europe, and will do so in a more measured way. McDonald’s gets about 60% of its revenue from overseas.

McDonald’s “is well-positioned for the industry’s potential shift back toward a value focus in a more challenging macro environment, given the brand’s historical strength in core, everyday value,” Christopher Carril, an analyst at RBC Capital Markets, said Tuesday in a note to clients.

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